China's UCOME prices hit 17-month low amid policy uncertainty and EU scrutiny

New Delhi [India], January 15 : The biodiesel market in China faces headwinds as policy ambiguity and European investigations trigger a sharp decline in Used Cooking Oil Methyl Ester (UCOME) prices.
According to S&P Global Commodity Insights, platts data reveals a 42.12 per cent drop in Chinese UCOME prices to USD 955/mt on January 12, marking a 17-month low since August 2022.
The prevailing uncertainty in Chinese government policies, coupled with soaring freight costs and ongoing investigations by the European Union (EU) into biodiesel fraud and antidumping practices, has substantially impacted UCOME prices.
Platts started assessing UCOME FOB China prices on August 1, 2022, and the latest figures show a drastic reduction from USD 1,650/mt on August 15, 2022.
Chinese UCOME buyers are exercising caution in the wake of investigations by the European Commission, resulting in significantly reduced biodiesel demand in the EU.
The European Commission initiated an antidumping investigation into biodiesel imports from China in December 2023, following a probe launched in June 2023 related to potential fraud associated with biodiesel imports from China.
The ongoing investigation and potential imposition of import duties have led to hesitancy among buyers, causing a sharp decline in export volumes.
A Chinese producer noted that their production is currently running at one-third capacity due to the negative impact on export volume resulting from the EU investigation on antidumping probes.
Winter demand in the Northern Hemisphere further adds to the challenges, with the elevated cold filter plugging point of UCOME, primarily derived from palm oil, making it less desirable during colder months.
European buyers are cautious about substantial UCOME volumes during winter, affecting China's export volumes to Europe, a key market for UCOME.
The surge in freight rates and increased risk premiums has added to the concerns of biodiesel producers. Shipping expenses for transporting UCOME from China to Europe rose sharply to USD 190/mt as of January 12 from USD 130/mt in November 2023.
A supplementary war risk premium for tankers navigating through the Gulf of Aden has also surged, disrupting the biodiesel trade from Asia to Europe.
China's National Energy Administration (NEA) has expressed efforts to boost domestic demand for biodiesel through the development of biodiesel projects and carbon crediting methods.
However, the lack of concrete details on financial incentives nearly two months after the announcement is causing uncertainty.
The absence of crucial information on the type of financial aid and its distribution among producers, consumers, and other stakeholders hinders the industry's transformation.
Amid the ongoing antidumping investigation and unclear biodiesel policies in China, producers are exploring alternative export markets for UCOME.
Some Chinese suppliers are redirecting their focus to alternative markets, seeking more stable conditions for biodiesel trade. Notably, GS Caltex, South Korea's second-largest oil refiner, recently sold its first 1,000 mt biofuel blend (24 per cent UCOME) to Maersk Oil Trading in Singapore, signalling a shift towards alternative markets and carbon-neutral efforts.